The European Central Bank could deliver another interest-rate cut by mid-2026, but that may not stop the euro from strengthening against the dollar, according to MUFG.
Analysts at MUFG said the Federal Reserve is likely to be more active in easing policy over that period, with markets potentially pricing in additional Fed rate cuts, which would narrow yield differentials in the euro’s favour.
While the ECB has signalled no immediate policy changes, MUFG said there remains scope for further easing if inflation continues to trend lower. He noted that energy prices could ease following OPEC+’s production increase and as China redirects exports away from the U.S., factors that could help bring eurozone inflation down further.
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MUFG’s outlook highlights potential divergence in policy momentum between the ECB and Fed. A faster U.S. easing cycle could limit dollar strength, keeping EUR/USD supported near medium-term highs even if eurozone rates edge lower.
This article was written by Eamonn Sheridan at investinglive.com.